40 years means new contracts and new method of market analysis

Futures markets have come a long way in 40 years. Here's one market technicians view on how much has changed.

I’m old enough to remember the 1972 launch of Futures Magazine (although it originally was called Commodities Magazine). The earlier name was more appropriate because the only futures markets that existed at the time were on commodities. I was in the second year of my career as a commodity analyst and spent my days analyzing such things as corn, wheat, soybeans, broilers, cattle, hogs, pork bellies, cocoa, coffee, cotton, sugar, orange juice, eggs, and potatoes. That was the entire commodity universe at the time. Gold futures weren’t introduced until 1974. Crude oil futures didn’t start trading until 1983.

Something else happened during 1972 that changed the entire landscape of the futures industry. Foreign currency futures were introduced at the Chicago Mercentile Exchange (CME), which was the start of the evolution of financial futures. Beginning in 1976, the Chicago exchanges introduced a new breed of financial futures in Treasury bills and Treasury bonds, which were followed shortly by Eurodollar and Treasury note futures. That opened up a whole new world to futures traders. Ironically, most of those revolutionary changes took place in Chicago. One reason why Chicago became the launching pad for so much financial innovation was the encouragement and enthusiasm provided by Milton Friedman who taught at the University of Chicago. His close relationship with Leo Melamed led to the introduction of currency futures at the CME in 1972 and paved the way for more innovation to come in financial futures throughout the following decade.

The next major innovation took place in 1982 with the introduction of stock index futures. That opened up the world of stock trading to futures analysts and traders. Another piece added to the commodity picture was the introduction of futures on the Commodity Research Bureau (CRB) Index during 1986, which offered a basket approach to trading commodity markets. The introduction of a futures contract on the U.S. Dollar Index around the same time offered a way to trade the dollar against a basket of foreign currencies. By that time, distinctions had to be made between the terms commodities and futures. While all commodities were futures, not all futures were commodities. As a result, the term futures became the more widely accepted description of the industry.

I started my career in the late 1960s as a stock analyst. Because I lived in New York, that seemed a logical choice. By 1970, however, times got tough for aspiring young stock analysts and I became a commodities analyst for a large brokerage firm on Wall Street. As it turned out, that was a great (although lucky) move. The 1970s were a lost decade for stocks, while commodities soared. It was truly a golden age for commodity traders. But that ended in 1980 when commodities peaked and entered a two-decade slump. During those 20 years, bonds and stocks rose. Fortunately, by that time, futures traders were able to shift their trading emphasis away from hard commodities into financial futures.